Why Investors are Hyped on Apple's New Lineup
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While some companies in the technology sector have crashed and burned, others such as Apple (NASDAQ: AAPL) have continued to not only run with the trends, but to create them. In this article, I discuss why CEO Tim Cook, with the aid of Apple hardware and iOS executives, Bob Mansfield and Scott Forstall, respectively, are about to remake Apple's technology lineup and leap further ahead of the competition.
The Fundamentals
Apple's first quarter profit came in at over $13 billion - due in large part to the release of its infamous iPhone 4S as well as Siri, Apple's popular voice-activated AI tool. Siri, a product of Forstall's iOS area, is an intelligent personal assistant that accomplishes tasks just for the asking by allowing users to send messages, schedule meetings, place phone calls, and more by simply using their voice.
Siri uses the processing power of Apple's dual-core A5 chip in the iPhone 4S as well as both 3G and Wi-Fi networks in order to quickly communicate with Apple's data centers. This allows it to understand what the user has asked and to then come back with a response. Currently in its beta testing phase, Siri will continue to be improved over time.
One of Apple's latest technologies - the release of the iPhone 5 - could be taking shape later this year as well. I expect the product to have some significant design changes as well as advanced components. One change that has been rumored is a new case design, specifically with a "tear drop" look to match the same shaped screen. The device may also be thinner than the current iPhone models.
In addition, while it is likely that Scott Forstall will be moving the firm towards an iOS 6 launch - possibly even as soon as this summer - Bob Mansfield's hardware area is rumored to be developing a new 7-inch iPad with retina display due out in the fall. This device is likely to be priced in the low to mid $200 range, providing some competition to Amazon's Kindle Fire.
Fundamentally Speaking
Back in January, Tim Cook announced the most successful quarter in the company's history. Cook's claim of over $13 billion in profit also included another $17.5 billion in cash for the quarter that ended December 31, 2011 - thanks in large part to the release of the iPhone 4S and Siri.
Apple's CFO Peter Oppenheimer has predicted second quarter 2012 revenue of approximately $32.6 billion along with diluted earnings per share of roughly $8.50. And, should this powerhouse company soon release an Apple-branded TV, it will likely accomplish these predicted goals for the next quarter as well.
In fact, there's a chance that with the successful sales of Apple's new iPad, the company could even claim up to $40 billion - especially given that over 15 million of these devices were sold in the December 2011 quarter alone. The company could be on pace to sell between 25 and 30 million of these iPads in the second quarter 2012.
Even with higher sales, though, Apple is likely to report less cash for the second quarter. This will be due primarily to its recent announcement to offer a quarterly stock dividend as well as a stock buyback program in the amount of approximately $10 billion over the next three years.
Considering the Competition
As Apple continues to move forward, its competitors have certainly not sat by on the sidelines. Hewlett-Packard, for instance, has continued to trudge along. But HP's operating margins, although not poor, have for the most part stagnated for the past five years or so, while its stock is currently trading a just under $25 per share - barely above its 52-week low.
Another company that is relevant to Apple's future is Dell (NASDAQ: DELL). This company's revenue has declined recently, however it did achieve a growth in EBIT of 26% primarily from its services businesses as well as its enterprise solutions.
Nokia (NYSE: NOK) has also had operating margins of late that have literally fallen downward due in part to the erosion of the company's traditional "Symbian" operating system. Yet this is offset somewhat by a positive outlook for Nokia's Windows-based "Lumia" handsets.
Another company that is relevant to Apple is IBM (NYSE: IBM). This company has transitioned over the past decade, attaining approximately 85% of its 2011 revenue from software and services. So what could make IBM more of a competitor to Apple? First, the outlook for 2012 and beyond is extremely positive. There are few companies that have the global scale and tremendous customer base of IBM. In addition, the company has been smart with its product development and recent acquisitions - in particular the buyouts of Unica and Netezza that will move the firm more into the web marketing applications and web analytics areas.
In addition, IBM's board of directors recently declared a regular quarterly dividend of $0.85 per common share that is payable June 9, 2012 to those stockholders of record as of May 10, 2012. This dividend represents an increase of $0.10, or 13% higher than the previous quarterly dividend of $0.75 per common share
IBM's board also announced that the company has authorized $7 billion in additional funds for use in the firm's stock repurchase program. IBM plans to repurchase shares in the open market as well as via private transactions, depending upon market conditions. IBM also anticipates spending $20 billion between 2012 and 2015 on acquisitions to support the company's growth.
The Bottom Line
Apple offers an excellent buying experience for its customers - which is why people have continued to purchase the company's products. Apple's dominance is reflected in its operating margin track record which has been climbing steadily and consistently. Given Apple's recent positive earnings reports and positive outlook going forward, I feel that shares of this company are well worth the investment.
StockCroc1 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
